Canada's economy squeezed out a paltry gain of 2,300 jobs last month as the country's unemployment rate increased due to more people looking for work.

The unemployment rate climbed one notch to 7.6 per cent last in January, as the economy continued its struggle to produce jobs in numbers large enough to absorb the increase in Canadians looking for work.

Economists had expected a pop of 25,000 jobs for the month, in part because of the unseasonably warm temperatures could have encouraged more hiring in some industries.

But the increase was much weaker than anticipated, compounded by the 23,700 additional Canadians who joined the labour force, accounting for the climb in the jobless rate.

January was the third month in the last four that saw the unemployment rate increase since last September's 7.2 post-recession low.

"This extends the ugly end to 2011," said Douglas Porter, deputy chief economist with BMO Capital Markets.

"Today's report reinforces the point that Canada's job creation engine is cooling markedly," adding that there is no single factor for the softening trend that has seen employment fall on average during the last four months. The 7.6 per cent unemployment rate is also the highest in nine months.

TD Bank economist Derek Burleton said the recent figures are consistent with an economy fighting to keep its head above water. And he sees little relief in the upcoming months.

"For the year as a whole, we continue to expect average monthly job gains of about 10,000 per month, more heavily weighted to the second half of the year," he advised clients in a note.

David Madani of Capital Economics said January's dismal employment gain and rise in unemployment are further signs the economy ended the year on a weaker footing.

"Given the headwinds confronting Canada's economy, we doubt economic growth is about to rebound significantly anytime soon," he said in a release.

"As such, we think more monetary policy stimulus will soon be needed," Madani said.

Currency traders see the employment report more positively because payroll jobs are up almost 40,000, while the number of self-employed is down about 37,000, BNN's Michael Kane told CTV News Channel Friday.

"So, the headline 2,300 jobs doesn't look like anything, but obviously currency traders are saying payroll jobs being created, that's a major thing," Kane said.

In tough economic times, more people opt for self-employment, but in January more job seekers moved over to payroll, a positive signal that explains the rise in the Canadian dollar, he said.

The Canadian dollar fell slightly after the jobs report was released, but was trading above par late in the morning.

After a strong start in 2011, employment in Canada has largely stalled since last summer, with only 20,000 or so jobs being added in the last six months.

Over the past 12 months, the economy has produced 129,000 new jobs, or a 0.7 per cent gain in employment, one of the weakest records in a non-recessionary period in many years.

The fall-off in job creation has coincided with generally weaker economic conditions and declining business confidence due to uncertainty in the global situation. Earlier in the week, the agency reported that the economy contracted slightly in November following a flat growth reading in October.

Most economists believe conditions in Canada, as well as job creation, will remain weak throughout 2012.

By sector, employment rose in the education, information, culture and recreation, and in other service industries in January.

Meanwhile, there were a big loss of 45,000 workers in the professional, scientific and technical services industries, and construction shed jobs despite the warm temperatures during the month. Manufacturing saw a small pick-up but remains 44,000 down over the last 12 months.

Regionally, there were few major changes in any province except Quebec. After a sharp drop in employment the previous few months, Canada's second most populous province saw 9,500 new jobs added, bringing the unemployment rate down three-tenths of a point to 8.4 per cent.

Here are some additional details from the report:

  • In January, employment in education increased by 23,000, while jobs in information, culture and recreation went up by 19,000;
  • Employment in "other services" increased by 14,000 over the past 12 months;
  • In total 45,000 fewer people were employed in the professional, scientific and technical services compared to January 2011;
  • Employment in the natural resources sector was virtually unchanged in January, but has posted the highest 12-month growth rate of all industries, up 8.5 per cent or 28,000 jobs since January 2011.
  • Canada's economy squeezed out a paltry gain of 2,300 jobs last month as the country's unemployment rate increased due to more people looking for work.